Rescued Banks Balk at Chrysler Deal
Friday, April 17, 2009
At a meeting with executives from four of the nation's largest banks earlier this month, the chief of the government's auto task force, Steven Rattner, delivered a message that shocked some in the room.
To save Chrysler, he told them, the four banks and several other financial firms would have to surrender their claims to most of the $7 billion the automaker owed them. And what would the banks get in return for this sacrifice? Nothing.
"People's jaws just dropped," said a person familiar with the discussions.
But those four banks are themselves recipients of billions of dollars in government largesse. Collectively, they have received $90 billion from the rescue program for the country's banks. Now, their critics say, the firms have an obligation to cooperate as the government seeks to save Chrysler.
"These are banks that have received substantial investments from the government," said Rep. Gary Peters (D-Mich.), whose district includes Chrysler headquarters. "We hope they will understand that what was given to them was not for their benefit, but to get the economy moving again and maintain American jobs. People are angry that again it seems like the banks are standing in the way."
Representatives of the banks and the other lenders have formed a committee to handle negotiations.
"Together, we are focused on providing a thoughtful response to the initial proposal," they said in a public statement this week.
Privately, the lenders contend that the government offer was unfair.
"Ironically, politicians are accusing us of not wanting to lend more," said a source at one of Chrysler's creditors, referring to criticism that the reluctance of financial firms to make loans has stalled the economy. "But what's the incentive to provide loans if the government can come in at any time and trump you?"
Under the Chrysler rescue plan outlined March 30 by President Obama, Chrysler must strike a deal with its creditors and unions to reduce the company's debts. The company then must reach a pact to merge with the Italian automaker Fiat. If it does so by April 30, the government may extend an additional $6 billion in loans.
The requirements set out by the Obama administration leave the banks with a powerful role in determining the fate of the storied U.S. automaker.